Big Blue Rental Corp. provides rental agent services to apartment building owners. Big Blue Rental Corp.’s preliminary income statement for August 2019 and its August 31, 2019, preliminary balance sheet did not reflect the following: Rental commissions of $670 had been earned in August but had not yet been received from or billed to building owners
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Big Blue Rental Corp. provides rental agent services to apartment building owners. Big Blue Rental Corp.’s preliminary income statement for August 2019 and its August 31, 2019, preliminary balance sheet did not reflect the following:
- Rental commissions of $670 had been earned in August but had not yet been received from or billed to building owners.
- When supplies are purchased, their cost is recorded as an asset. As supplies are used, a record of those used is kept. The record sheet shows that $530 of supplies were used in August.
- Interest on the note payable is to be paid on May 31 and November 30. Interest for August has not been accrued—that is, it has not yet been recorded. (The Interest Payable of $90 on the balance sheet is the amount of the accrued liability at July 31.) The interest rate on this note is 10%.
- Wages of $430 for the last week of August have not been recorded.
- The Rent Expense of $1,530 represents rent for August, September, and October, which was paid early in August.
- Interest of $450 has been earned on notes receivable but has not yet been received.
- Late in August, the board of directors met and declared a cash dividend of $4,500, payable September 10. Once declared, the dividend is a liability of the corporation until it is paid.
Required:
a. Using the columns provided on the income statement and balance sheet for Big Blue Rental Corp., make the appropriate adjustments/corrections to the statements, and enter the correct amount in the Final column. (Hint: Use the five questions of transaction analysis.
(Enter amounts in the Adjustments/Corrections columns as positive numbers. Net income Adjustments/Corrections: Please use the numbers from the Income Statement and enter amounts in both the Debit and Credit columns.)
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